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The GlobeSt.com’s Quick Poll asked the audience whether or not accounting changes in the industry are “sorely needed” or “won’t work as proposed”. The majority said they were needed, but only be a 10% margin, as 45% still weighed in pessimistically that they won’t work as proposed. Stroock & Stroock & Lavan’s William Campbell sees them as needed for some and ungainly for others.

“These new rules regarding consolidation were necessary to address a lack of recognition of what really belonged on a bank balance sheet. So the answer is on a global matter there is a need for a change. Whether these rules should apply in equal force to every securitization vehicle that’s created is a different story. So the short answer is the accounting changes are widely believed to be necessary, but not necessarily equally applicable to every securitization situation.

“For CMBS transactions in particular, they probably should not be applicable, because in CMBS transactions you have a bank that originates loans and then sells them and [the bank] might retain some of the risk or they might, for a fee, retain some ability to service and administer the loans and the securitization pool, but that doesn’t equate to really being part of the bank’s assets. Only the individual securities and economic interests in the securitization trust would count, but to say that the entire loan pool should count on the banks balance sheet would be a distortion.

“What these rules, which were intended to create clarity for a lot of securitization vehicles, would in the CMBS world create a distortion. It would require banks to count more assets on their balance sheets than they have an economic interest in or an economic risk with respect to [those assets].

“It would be punitive to the banks in their ability to do CMBS securitizations to the point where [the banks] couldn’t do them. Because if you force them to count the assets of the securitization vehicle as assets, then they’d have to have capital or equity of probably 8% to match that, which would make it virtually impossible economically for the banks to properly do securitization bids.”

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